One of the most overlooked areas of financial planning is income protection, specifically disability income insurance.
Most people are quick to consider homeowner’s insurance, car insurance, and life insurance to protect their family’s financial wellbeing. You likely have these areas covered. It is also likely that you are actively saving for retirement, paying down your mortgage, planning your next vacation, and maybe even saving for a child’s college education. As long as you have income, your financial goals remain attainable. But what if your income unexpectedly stops? If there is one thing worth insuring, it may well be your income.
The ability to work and earn an income is most people’s greatest asset. How much more money do you stand to earn before you retire? For many of us, it is more than our house, our cars, and much more than we would be comfortable losing.
Many people are fortunate to have disability insurance options available through their employers. Some employers pay for a long-term disability benefit; some make coverage available on a voluntary basis. However, depending on what is covered, the tax nature of the monthly benefit, and the cap on group contracts, many who think they have adequate coverage at work may realistically only have 30-40% of their income protected. In these scenarios, an individual policy can be issued to supplement group coverage and bring income protection to a sufficient level.
We often write “Non-Cancellable and Guaranteed Renewable” individual policies. This means the insurance company cannot change your benefits or increase your premium until a certain age (usually 65 or 70), regardless of changes in your income, occupation, or health. Also, your coverage stays with you if you change jobs, move, or start a business. You are binding the insurance company to the policy and premium that suits you, and the insurance company cannot change it – a rare thing in today’s world!
In the event that the company you work for does not make any group insurance available, an individual disability policy may be your only bet. For an individual policy that covers 60-70% of income, premiums are typically in the 2-3% of income range, and will vary with age, gender, and occupation. Some insurance companies offer a discount on individual disability policies when purchased alongside a life insurance policy. You can even use the same paramedical exam to apply for both.
For small business owners, we can work with you to make long-term disability coverage available to you and your employees at little-to-no cost to your business. By offering long-term disability coverage through the business, employees will get unisex rates and often get to skip the underwriting process all together. This is great, especially when you have uninsurable employees in need.
According to the Social Security Administration, 1 in 4 of today’s 20 year-olds will suffer a long-term disability before they retire. If you are not sure how much of your income is truly protected, or do not know the specifics, now is the time to find out. Like with all insurance, we hope you never need it. But for individuals watching over their families and business owners watching over their employees, we are here to help you review your coverage, answer any questions you may have, and plan for